Son has done very well with the first US$34.6 billion, most of which was invested last year at a US$260 billion valuation. The latest funding round, which pegs OpenAI’s valuation at US$852 billion, will allow the firm to book US$45 billion in paper gains, implying a 129% return, according to Bloomberg Intelligence.
Whether this year’s investment will pan out is far from clear, however. Since OpenAI’s March funding close, there have been noticeable shifts in capital markets. Anthropic PBC, founded in 2021 by a group of former OpenAI employees, is gaining momentum with a new model the company claims can detect security vulnerabilities in critical software. It’s weighing a fresh funding round at a valuation of over US$900 billion, more than OpenAI fetched in March.
Global equity markets have also moved on from developers that build foundational models to chipmakers that might benefit from the AI data-centre boom.
Arm, acquired a decade ago for around US$31 billion, is worth more than US$220 billion. Much of the value creation was incurred in recent weeks, as investors bet that data centres will deploy a lot more central processing units, or CPU, to power AI applications. Arm, which traditionally makes money by licensing its CPU architecture to bigger companies like Nvidia Corp, has decided to make the chips itself.
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The win from Intel Corp is even more impressive. A US$2 billion investment made last August is now worth US$9.4 billion, representing a total return of about 370%. Seen in this light, Son’s US$30 billion commitment to OpenAI this year is no longer looking so savvy.
But liquidity is as important as paper gains. There are already signs that capital markets are souring on Son’s biggest bet. SoftBank is seeking a US$10 billion margin loan backed by its OpenAI holdings. Discussions have included a potential initial interest margin of about 425 basis points over the benchmark, working out to about 7.88% interest despite the collateralised nature. The cost of borrowing is high, given that SoftBank paid only 8.5% on an unsecured 10-year dollar note in April.
Arm and Intel’s liquidity conditions are marvels by comparison. Despite Arm’s low public float — SoftBank’s stake is about 87% — the chip designer’s daily trading volume has recently ranged from US$1.4 billion to US$1.7 billion, allowing traders to enter and exit multimillion-dollar positions easily. This, in turn, gives bankers comfort to provide low-cost margin loans, allowing SoftBank to cash out without offloading its assets.
See also: Anthropic warns investors to avoid certain secondary market sellers
The fact that SoftBank can’t cash out from OpenAI is a big problem for Son, who habitually uses leverage to juice up returns. The firm is facing a US$32 billion funding shortfall, according to estimates from research outlet CreditSights.
This perhaps explains why SoftBank is planning to create an AI and robotics company, named Roze, and list it in the US later this year. After all, OpenAI’s pathway to a public listing is becoming hazy. It has reportedly missed its own revenue targets and is considering spinning out its loss-making robotics and consumer hardware divisions.
The group plans to hold an analyst day at a data centre facility in Texas in July to promote the Roze IPO. By talking up physical AI instead, Son is essentially admitting that even SoftBank is moving on. — Bloomberg Opinion
